Keep the Renewable Energy Target

| September 2, 2014

A government-commissioned review has recommended scaling back the Renewable Energy Target (RET). Professor Kevin Parton, an expert in the economics of climate change policy, believes this would be a mistake.

The purpose of the Renewable Energy Target (RET) is to encourage Australia to invest in renewable energy at reasonable cost. To date this objective has been so satisfactorily achieved that most analysts regard the RET as one of the Government’s most successful policies.

Greenhouse gas emissions are falling, and under the RET Australia is likely to achieve the 2020 target of 20 per cent of power generated from renewable sources. So why does the review of the RET by businessman Dick Warburton suggest that the scheme should be cut back?

The main reason is that the review has focused on only short-term costs and benefits, and has done so on the basis of dubious cost assumptions.

There are now a number of estimates of the cost of the RET to consumers. Depending on the assumptions you make about, for example, future cost of generating power from renewable sources, the calculation shows either a small increase or a small reduction in consumers’ electricity bills. The review has used an analysis that has both wind and solar power generating costs at the higher end of the range. The consequence is that the calculation results in a small net cost to consumers.

What has the review of the RET overlooked?

First, the environmental costs and benefits of the RET have not been included. This is a significant omission, given that reduction in greenhouse gases is an important target of the scheme.

Second, benefits of developing local expertise in the renewable energy sector have not been assessed. They could be considerable.

Third, if we do cut back now, we will lose the momentum that has been built-up, and it will cost much more to re-invigorate the development of renewable energy at a later date. There is substantial benefit to continuing the stability that the current version of the RET has created.

There are two other positives of continuing the RET that can easily be overlooked. International equity will be invested in Australia instead of elsewhere, and the RET doesn’t cost the taxpayer; it is cost neutral to the Government.

Finally, we need to keep in mind that the electricity supply industry of 2030 will be considerably different from today. Much of the coal-fired generating capacity will have been replaced by renewables. Through the RET some fledgling steps have been made in an orderly manner towards such a clean energy future for Australia. It would be a mistake to jeopardise this future by an ill-considered change in policy at this juncture.



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    January 28, 2015 at 6:14 am

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    January 28, 2015 at 10:05 am

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